A good deposit is one that enables you to get a mortgage. It’s that simple. The monthly repayments and interest you pay back will depend on your deposit. The more money you have to put towards your deposit, the less you have to pay back overall.
It’s a balancing act.
Generally speaking, the larger the deposit the lower the interest rate.
You might have heard of 100% mortgages, where there is no deposit at all. I bought my first flat in 2006 like this with Northern Rock “back in the good old days” lol. As it stands now, you have no chance of getting 100% because they are no longer available in today’s market. You NEED to have a minimum of 5% of the property value saved as a deposit. This is key to getting the ball rolling.
There are key %’s that mean you can “potentially” get a lower interest rate; 5%, 10%, 15%, 20%, 25% and 40%. At each of these mile stone deposit amounts, you can expect to have a marginally lower interest rate.
A good deposit for you is based on how much you have saved and how much the bank/lender will give you. You always look for the lowest interest rate and monthly repayments that you can afford in the long run.
As well as the deposit you’ve saved up, you’ll need some additional money to cover the costs of buying a property. This includes fees such as:
In some instances, lenders will request a larger deposit after carrying out a credit search on you.
To give you an example, I have had clients who we applied for 5% however due to a lack of previous credit and/or other reasons, the lender insisted on 10% or even 15% to continue with a full application.
Your deposit cannot be funded by a personal loan or credit card.
Your deposit can come from your own savings or be gifted by a relative. By relative I mean a family member related by: birth, blood, marriage, common-law partners and civil partnerships. The family member cannot hold any interest in the property following completion of the mortgage: that includes living in the property (they have to be on the mortgage application).
You’ll need a letter that confirms the relationship between you and your relative. It also needs to confirm that the money provided is a gift and isn’t repayable. Your adviser may provide you with the letter template, or if you’re going at it alone, you’ll need to get it from the lender.
If you’re purchasing a property for Buy To Let purposes, most lenders prefer a 25% deposit. Some will accept 20%, and very bespoke lenders may dip to 15%. You’ll have to stray off the high-street to find this type of mortgage lender though.
If you have adverse credit like a default, CCJ or missed payment you could find that a 15% deposit may be necessary.
There are other methods to help increase your deposit. You’ve most likely heard of the government Help To Buy scheme and shared ownership. Sit tight, I will be writing about these topics shortly, as they may change as a result of the EU referendum. Even with these schemes today, you must have your own 5% deposit.
Don’t worry if you can’t see your own circumstances fitting into this blog post. Everyone’s mortgage experience is a bit different, especially if you’re self-employed as a sole trader, business owner or entrepreneur. It doesn’t mean that you can’t get a mortgage.
Your next step is getting some personalised advice.
If you want to take the leap, then go ahead and submit an enquiry on my website.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
The actual rates available to you will depend upon your circumstances. Please ask for a personalised illustration.
All opinions are my own, and any facts/statements are true and correct as of the date this post was first published at activebrokers.co.uk/blog.